Adjustable versus fixed rate loans

A fixed-rate loan features a fixed payment amount for the entire duration of the mortgage. Your property taxes increase, or rarely, decrease, and so might the homeowner's insurance in your monthly payment. For the most part payments on your fixed-rate mortgage will increase very little.

At the beginning of a a fixed-rate mortgage loan, most of your payment goes toward interest. That reverses as the loan ages.

You can choose a fixed-rate loan in order to lock in a low interest rate. Borrowers choose fixed-rate loans because interest rates are low and they want to lock in at this lower rate. For homeowners who have an ARM now, refinancing into a fixed-rate loan can offer greater stability in monthly payments. If you have an Adjustable Rate Mortgage (ARM) now, we'll be glad to help you lock in a fixed-rate at a good rate. Call 1st Credential Mortgage Inc at (281) 778-0805 to discuss your situation with one of our professionals.

Adjustable Rate Mortgages — ARMs, come in a great number of varieties. ARMs are normally adjusted every six months, based on various indexes.

Most programs feature a cap that protects you from sudden monthly payment increases. Some ARMs can't increase more than two percent per year, regardless of the underlying interest rate. Sometimes an ARM features a "payment cap" that ensures your payment can't go above a certain amount over the course of a given year. Almost all ARMs also cap your rate over the life of the loan period.

ARMs usually start out at a very low rate that may increase as the loan ages. You may have heard about "3/1 ARMs" or "5/1 ARMs". For these loans, the introductory rate is set for three or five years. It then adjusts every year. These loans are fixed for 3 or 5 years, then adjust. Loans like this are usually best for people who anticipate moving in three or five years. These types of adjustable rate loans benefit people who plan to move before the initial lock expires.

Most people who choose ARMs do so because they want to take advantage of lower introductory rates and do not plan to remain in the house for any longer than the introductory low-rate period. ARMs can be risky in a down market because homeowners could be stuck with rates that go up if they can't sell their home or refinance at the lower property value.

Have questions about mortgage loans? Call us at (281) 778-0805. We answer questions about different types of loans every day.

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